Evolving Corporate Cash Landscape
The article below is from our BRIEFINGS newsletter of 02 July 2021
Spurred by the uncertainty over the pandemic, corporations have amassed a record amount of cash. We sat down with Goldman Sachs’ Hari Moorthy, global head of transaction banking, to discuss the evolving landscape for cash management.
Goldman Sachs recently launched its corporate transaction banking service in the U.K., following its launch in the U.S. last year. Hari, can you start by explaining what corporate transaction banking is?
Hari Moorthy: Transaction banking at Goldman Sachs is a service that we provide to corporates to manage their cash, manage business-to-business payments, accept receivables, and make payments across 125+ countries. Corporations tend to have hundreds, sometimes thousands, of business accounts across multiple entities and geographies. And depending on the company’s size, it needs to process millions of transactions through those accounts each day. Our vision is to provide our clients with a globalized, modern cash management platform that is secure, easy to use, and nimble to support them as they run and grow their businesses.
And why did you decide to launch in the U.K.?
Hari Moorthy: The U.K. is an attractive market for corporate cash management because of the number of companies based there with international payment needs. The transaction banking wallet in the U.K., for example, is estimated to be between $20 billion and $30 billion, according to data from McKinsey, while London is a global FX hub due to its history as a global financial center, its use of the English language, and convenient time zone. Many multinational corporations have large international treasury functions in London and the U.K., including cash pooling, intercompany borrowing and lending, FX management and payable and receivable management, and we believe that by expanding to the U.K. we can help these companies manage, optimize and digitize their complex treasury operations.
So how is transaction banking evolving and why is Goldman Sachs expanding into this business?
Hari Moorthy: The corporate cash management industry is ripe for disruption given that treasury functions are still largely manual and dependent on paper trails. In fact, it can take weeks for companies to get accounts up and running. That said, digitization has picked up materially over the past year as businesses have had to adapt to contactless payments. Additionally, transaction banking can be viewed as a stabilizing anchor for banks, with revenue volatility generally lower than capital markets products.
What does the competitive landscape look like?
Hari Moorthy: Large commercial banks have developed scale and “stickiness” in this industry, but they tend to have legacy technology platforms that make innovation difficult. Fintech companies are also competing, but they’re solving very specific payment challenges. We saw an opportunity to start with a clean-slate using technology as a differentiator and—with the firm’s balance sheet, financial expertise and focus on meeting our clients’ evolving needs—build a next-generation cash management offering that will transform the way corporations manage their cash. Clients want a digital solution that is both secure and nimble and can evolve with their needs over time. We’ve received great feedback from clients about everything from our fast and easy onboarding process to our consumer-grade web platform, and we aim to bring a similar experience to our U.K. clients as we launch products there.